News

27

Oct 2015

Another risk for directors of struggling businesses

I am not sure how many of you have seen the recent press reporting of the cases the Insolvency Service are bringing against the directors of Sports Direct/USC and City Link, but it demonstrates another risk for SME directors if they employ staff and their business is failing.

The prosecutions are being brought under s194 of the Trade Union & Labour Relations (Consolidation) Act 1992, which essentially outlines the requirement for a business to consult with its employees ahead of any redundancies (the provisions are summarised below) and in the event of not complying with this requirement, then the directors can be convicted of a criminal offence and fined up to a maximum of £5,000. My belief is that the Insolvency Service will then utilise a successful conviction under this legislation to form the basis of further disqualification proceedings, as the criminal offence will be prima facie evidence of misfeasance by the directors.

There is always a conundrum facing directors when their business is in difficulty, if they talk to staff could this accelerate the downfall of the business, particularly if key staff jump ship when the consultation process is commenced. However the government, despite claiming to understand the issue, appear to have decided to increase the pressure on employers to consult.

The practicalities of certain situations mean that there just is not time to consult, although it does appear that the behaviour of some employers means that the bar has just been lifted for all. It was widely reported in the press at the time that some of the Scottish City Link employees were given 15 minutes warning of their redundancy! In relation to Sports Direct/USC the SIP 16 report which is filed at Companies House, details that the secured creditors, the parent company, met with insolvency practitioners on 14 November 2014, the company met with the same insolvency practitioners on 17 December 2014, a notice of intention to appoint administrators was filed on 6 January 2015 and it was only on their appointment a week later that the administrators advised the employees of the redundancies. When faced with that sort of time line, it is easy to see why the Insolvency Service has sought to prosecute.

What should you do to protect yourself?

Step 1 Notify the RPS before any consultation period (for 20 -99 employees this is 30 days before any redundancy, and for over 100 employees this is 45 days)

Step 2 Consult with trade union representatives/ elected representatives or if none all the staff directly

Step 3 Provide as much information as possible about planned redundancies

Whilst these provisions only apply to employers with over 20 staff, and anyone with under 20 staff does not risk a criminal conviction, a failure to consult could lead to a number of unfair dismissal claims. Whilst this is unlikely to support further disqualification proceedings now, who knows what the future might bring?